Small-business owners often are so busy working that they
don't take time to plan for their retirements which is a mistake. Advisers are
helping these entrepreneurs more accurately value their businesses as well as
their personal expenses, and figure out how to spend their time once they
retire.
Financial planner says one of the biggest mistakes
small-business owners make is relying too heavily on the sale of their
practices to fund their retirements which becomes problematic because they
frequently overestimate the value of their business.
For instance, a client valued his engineering firm at $1
million and the highest price he was offered for the firm was only
$725,000--more than a 25% discount off his valuation. The firm was his main
asset along with IRAs and brokerage accounts worth $700,000. So rather than
having $1.7 million, he'd likely have about $1.4 million for retirement. The
client was offered less because too much of the business's growth was solely
dependent on him. The planner had warned him repeatedly that he needed to
change his business development practices and groom successors so that he could
eventually fetch a higher price.
Factors such as an older client base, a business too
dependent on several large clients and slow-to-no growth can cause a firm's
value to be discounted. When preparing for retirement, small-business owners
often make the mistake of underestimating their personal expenses. Small-business
owners often don't take sufficient advantage of certain products to save for
retirement.
Since so many small-business owners' identities are wrapped
up in being a business owner, financial advisers should help them figure out
what to do with their free time once they retire. Advisers should ask questions
such as "As a child, what did you want to be when you grew up?" and
"If you found out you had five to 10 years to live, what would you change
in your life?" Through these questions, clients can discover how to spend
their time upon retirement and gradually give control of their businesses to
some key employees.
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